Today, the common problem of people rolling in dough is where to invest their money.

Turkey paid off its debt to the IMF. Good news? It depends on your perspective. From that of politics, it is new material to serve up to the voters. In technical terms, it is not the most cautious attitude to pay off the lowest-cost debt of a country with a total debt stock of $85 billion. Following Fitch’s decision in December, Moody’s upgraded Turkey to the investment rating. Good news? Also depends on the perspective. Good news if you have a game plan or a sector strategy to attract foreign direct investments. If you are planning to carry on with the current court system and limited patent protection, you can only become a bigger object for portfolio investors in search of new prey. Let me tell you what is going on in the world.

Here in Turkey we love to suppose that certain things only happen to us. Take the negative real interest rates issue, for instance. The Central Bank’s attempts to draw attention to the matter were called electioneering by some commentators. But the issue was global, not local. Today, the common problem of people rolling in dough is where to invest their money. The switch from the low-interest to the negative real interest rate episode has led to this problem.

The crisis that erupted at the center of the global economy is approaching its sixth year. There is no evidence it will be the last. At the center are low real returns and abundant liquidity. At the periphery that includes Turkey, returns have been relatively higher. The liquidity has flown towards the periphery, disturbing balances. To turn the domestic economy around, the Central Bank cut interest rates, which increased the risk of negative real interest rates. The expectation is that with low returns, foreign investors will search for new markets; some part of domestic consumers will increase their demands and consumption, pushing up inflation and hence pushing returns down into the negative zone. Meanwhile, the global search for relatively higher returns continues.

Each country, in the meantime, is trying to set a position. Brazil, for instance, has a robust personal pension fund industry worth about $450 billion. Portfolio managers are seeking to ensure higher returns for their clients. Nowadays Brazil is trying to raise the share of FX denominated securities in personal pension fund portfolios. It does not intend to send all funds overseas overnight, but the government has introduced a regulation that allows personal fund companies to jointly make overseas investments. This means funds will flow to Turkey not only from developed countries, but also from Brazil. At the first stage, the industry is expected to send a flow of $45 billion. Becoming an investable country with the latest Moody’s decision, the personal pension funds of other countries can easily diversify their portfolios adding Turkey to the list. Given the current ecosystem in Turkey, inflows will be short-term, not long-term. In the first quarter of 2013, foreign fund inflows quadrupled year-on-year, reaching $24 billion and will be counting.

This reminds me of a Hodja Nasreddin story: Timur sends an elephant to the village where the Hodja lives so that it can be fed and taken care of. But the residents of the village get tired of taking care of the elephant as it eats all of their own food. They come together and say, "This is not bearable anymore. We should appear before Timur and tell him to take the elephant!" So, they agree to form a complaint committee of ten people, headed by the Hodja. They arrive at Timur's palace to appear before him. The group parades after the Hodja into the room. But when he enters the room, the Hodja sees that he is all alone! The others have turned back at the gate and he happens to be the only one inside. Timur sits to hear what the deal is. He wants to hear what is demanded. He says, "Great Timur, the poor elephant you left in our village feels lonely. If you would allow it, we will be more than happy if you sent another elephant to keep him company." Hodja returned to the village and declared, “Our elephant now has company!”

What can I say? The world has been changing. If you don’t have a strategic plan, you cannot keep the short-term funds in check. If you do, you can attract long-term investments. The job is even more difficult. What to do? For starters, the Patent Law must be reenacted reversing the latest vacuous amendments.

This commentary was published in Radikal daily on 21.05.2013